Modinomics bring cheers to market but challenges ahead

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Prime Minister Narendra Modi
The Narendra Modi Government has just completed a month and a half in office and it seems the people are already riding high on the wave of 'achhe din'. Markets cheered the development of low inflation, high exports and rise in industrial production as the Modi Government in a very short period have left no stone unturned to revive the floundering economy.

Riding Modinomics, Sensex too surged 1.27% to 25,549.72 points on Wednesday.

"The export data is very encouraging, especially the fact that it is led by robust performance of engineering goods, indicating a productivity revival. Given that non-oil, non-gold imports have shown an uptick, industrial production for June will also be quite strong," said Soumya Kanti Ghosh, chief economic advisor, State Bank of India.

The new Government had warned of bitter medicine to resuscitate the ailing economy and some of measures taken to curb inflation like crackdown on hoarding and black marketing, fixing minimum export price of essential commodities have proved fruitful for the economy.

The Modi Government has done enough to bring economic reforms in over 50 days but he faces tougher task ahead following the campaign trail of less Government and more governance. Some of the challenges infront of the Government is high trade deficit, weak monsoon, etc.

Positive developments

-Low inflation: Bringing cheers to market and in the eyes of the common man, the wholesale inflation dipped to 5.43 per cent in June mainly on account of decline in prices of food items and vegetables. Inflation had rose to five-month high of 6.01 per cent in May. The consumer inflation in June is 7.3% which is lowest since the CPI index began in January. The drop in inflation was mainly due to tough medicines of the Government.

-High exports: Exports rose to 10.2% in June. Exports in June stood at USD 26.47 billion as compared to USD 24.02 billion in the same month last year. It is the for the third consecutive exports have registered a growth in June. Exports of textiles, petroleum products, engineering, leather, marine products, oil seeds and tobacco have surged.

-Rise in IIP in May, highest in 19 months: The Index of Industrial Production (IIP) for the month of May came in at 4.7 percent as factory output rose to 19 month high. There was surge in growth of mining, electricity and manufacturing sector. Car sales was fastest in the month of June.

June trade deficit at 11-month high

-Rupee strengthened: The Rupee too has strengthen since the NDA Government came to power and is currently hovering around Rs 60 against a dollar.

-CAD shrunk greatly: Current Account Deficit narrowed to fresh four year leading to Balance Of Payment surplus.

Challenges infront of Modi Government:

-Trade deficit an 11-month high: Trade deficit of USD 11.76 billion is a 11-month high mainly on account of surge in gold imports. The previous high was USD 12.2 billion recorded in July last year. The Government may try to raise gold import duties anytime soon to control trade deficit.

-Gold imports surge 65% in June to $3.12 billion: The trade deficit rose in June as gold imports jumped 65.13 per cent to USD 3.12 billion from USD 1.88 billion in the same month last year, after registering a negative growth since October last year.

-Monsoon revival might not make up for drought: Though the monsoon is showing some sign of revival in North India, a large part of the country is likely to face drought like situation due to weak monsoon.

Following these challenges, the Government no doubt have chosen a difficult path unlike the predecessor Government and it is too much to expect in a very short period of time.

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